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Michael Welsh and Joseph Watkins, two lawyers from the Securities and Exchange Commission (SEC), have resigned following a federal judge’s sanctions against the agency for committing a “gross abuse of power” in its case against Utah-based crypto company Debt Box, according to a report from Bloomberg.
The attorneys were reportedly forced to step down or face termination.
In July 2023, the SEC accused Debt Box and its executives of defrauding investors of at least $49 million. The agency sought and obtained a temporary restraining order, freezing the company’s assets and placing it into receivership.
However, U.S. Chief District Judge Robert Shelby in the District of Utah later reversed the asset freeze after finding that the SEC may have made “materially false and misleading representations” in their pursuit of the restraining order.
Judge Shelby’s December 2023 order expressed concern that the SEC’s conduct had “undermined the integrity of the proceedings.” The judge sanctioned the agency in March 2024 for its “gross abuse of the power” entrusted to it by Congress. The SEC was then ordered to pay Debt Box’s attorney’s fees.
SEC admits to unwarranted actions
Following the sanctions, the SEC filed a response admitting that its team “fell short” of standards but argued that sanctions were “unwarranted.” SEC enforcement chief Gurbir Grewal, along with Welsh and Watkins, apologized to the court for the agency’s “shortfall” in the case.
The SEC also moved to dismiss the case without prejudice, but Judge Shelby denied the motion, stating that the court had not yet evaluated the underlying merits of the action.
The SEC’s conduct in the Debt Box case has drawn criticism from lawmakers, with five Senate Republicans sending a letter to SEC Chairman Gary Gensler in February 2024, criticizing the agency for conducting itself in “an unethical and unprofessional manner.” The letter also suggests that other enforcement cases brought by the Commission may warrant scrutiny for the same reasons.
An April 15, 2024 court filing confirmed that Welsh “is no longer employed by the Securities and Exchange Commission,” while Watkins’ LinkedIn page indicates that he is still employed by the agency. The case is ongoing, and the court has yet to evaluate the underlying merits of the SEC’s action against Debt Box.
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